Grillo v. PettieteAttorney sued for malpractice after client learned that a structured settlement was offered by the defense prior to the plaintiff accepting a cash settlement. Attorney refused settlement without notifying his client.

Legislative Information

The Periodic Payment Settlement Act of 1982The Internal Revenue Service has ruled that damages for personal injury are excludable from gross income under section 104 whether paid as a lump sum, or paid in periodic payments out of a fund invested and owned by the defendant or an insurer.

Structured Settlement Protection Act of 2002In 2001, Congress passed HR 2884 (view Section 115, Structured Settlement Factoring Transactions) signed into law by the President in 2002 and effective July 1, 2002 codified at Internal Revenue Code § 5891. This Act requires that all structured settlement factoring transactions be approved by a state court, in accordance with a qualified state statute. Qualified state statutes must make certain baseline findings, including that the transfer is in the best interest of the seller, taking into account the welfare and support of any dependents. In response, many states enacted statutes regulating structured settlement transfers in accord with this mandate. For the specific Structured Settlement Protection Act citation for each state click HERE.

Tax Information

IRC Section 72(U)Annuity contracts owned by non-natural persons (i.e. corporations, partnerships, etc.) must recognize the income on the contract for any taxable year as ordinary income received or accrued by the owner in that year.

IRC Section 104Gross income does not include amounts received on account of personal physical injuries.

IRC Section 130Any amount received by a life company for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of funding the annuity.

IRC Section 453Income from disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs shall be taken into account under the installment method.

IRC Section 468BSpecial rules for designated settlement funds which are established for the principal purpose of resolving and satisfying present and future claims against the taxpayer arising out of personal injury, death, or property damage.

IRC Section 5891Imposition of a tax equal to 40 percent of the factoring discount on any person who acquires structured settlement payment rights in a structured settlement factoring transaction unless it is approved in advance in a qualified order.

IRS Excluded Wrongful IncarcerationAn individual, wrongfully convicted of a crime and wrongfully incarcerated before being exonerated of the crime, having suffered physical injuries and physical sickness while incarcerated will be compensated for injuries, sickness, and economic losses flowing from the physical injuries and physical sickness

IRS Revenue Ruling 79-220The exclusion from gross income provided by section 104(a)(2) of the Code applies to the full amount of any monthly payments received by an individual in settlement of any damage suit.

Revenue Procedure 93-34 for 468B FundsProvides that an assignee may exclude from gross income amounts it receives for assuming the liability of a party to a suit or agreement to make described periodic payments of damages to a claimant.